Polyethylene demand bodes well for Sabic

Some analysts expect demand for petrochemicals to return to pre-recession levels by the end of this year, but so far there has been little evidence of that. Nevertheless, SABIC Europe, a unit of Saudi Basic Industries Corporation (SABIC), has put a stop on orders for low-density polyethylene, meaning it cannot meet additional requests for supplies of the world's most popular plastic that is found in products ranging from grocery bags and computer components to playground slides. "The order intake for March is very strong. We are completely sold out now," Platts, the energy and metals information company, quoted a company source as saying.

SABIC has had production problems at its Netherlands facilities and was able to meet only 70 per cent of customer requests last month. The company recently declined to comment on whether the issues had been resolved. That either means demand is picking up or other producers will benefit from SABIC Europe's lower output. Its facilities at Geleen in the Netherlands, nicknamed "Chemelot", produce up to 425 million tonnes of plastics used in the car, luggage and food-packaging industries, among others. Yesterday, the stock of the parent company, SABIC, closed unchanged at 88.75 riyals (Dh86.92) on the Saudi exchange.

Bakheet Investment Group believes Saudi's largest chemicals company could more than double its net profit this year as demand for petrochemicals rebounds in China. While global demand for low-density polyethylene remains uncertain, western hemisphere production is faltering. "Between 2010 and 2012, weak production capacities are forecast," the trading research group Market Publishers said. That could be good news for Middle East chemicals producers, including the UAE enterprise Borouge, held by the Abu Dhabi National Oil Company and Austria's OMV, and the Government-owned Abu Dhabi National Chemicals Company.

Both are planning major facilities expansions. More than 5 million tonnes of annual production capacity for ethylene, the chemical building block for polyethylene, is due to come onstream in Iran, Saudi Arabia, the UAE and other Gulf countries this year. These countries are also building polyethylene facilities. The feedstock will be ethane, a natural gas constituent that Gulf states increasingly extract from their gas supply.

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